Apr 8, 2010
China and US need each other
Chinese leaders are in the midst of finding the right balance between keeping a low profile and exerting their growing influence. As a result, astute observers find China fumbling from time to time in its reach for the right balance in its public positions. Deng Xiaoping summed up the US-China relationship in an epigram in the 1980s: There are inherent limits to better relations and inherent limits to bad relations.
DURING an important policy conference United States President Barack Obama said the Chinese yuan is kept at an artificially low level, giving China an unfair advantage in selling its exports. Mr Obama did not call China a currency manipulator, but he said the US has 'to make sure that our goods are not artificially inflated in price and their goods are not artificially deflated in price'.
US exports to China in 2008 were US$69.7 billion (S$97.4 billion) compared with imports of US$337.8 billion, a deficit of US$268.1 billion. Imports were five times the value of exports.
China has resisted calls to up-value the yuan, suspecting these are attempts to slow its growth. Yet Western economists unanimously agree that the yuan is undervalued by 24 per cent to 40 per cent and that the currencies of Hong Kong, Malaysia, Taiwan and Singapore also need to rise in order to correct their trade imbalances with the US.
But as long as the yuan doesn't appreciate, neither can the currencies of other East Asian countries, unless they're willing to lose their market share in exports.
Chinese Premier Wen Jiabao has said: 'We will not yield to any pressure of any form forcing us to appreciate.' China has urged the US to maintain the value of the dollar and has reduced its holdings in US Treasuries by 3.7 per cent, or US$34 billion.
China attacked the US policy of selling arms to Taiwan, threatening sanctions against American firms and non-cooperation on international issues. Thus, China resisted American initiatives on climate change in Copenhagen and has not backed tougher sanctions against Iran.
Beijing has also expressed great anger over President Obama's meeting with the Dalai Lama at the White House, issuing a terse statement that the US had 'grossly violated the norms governing international relations'.
At the Copenhagen summit on climate change Western media reported that Premier Wen refused to attend a meeting of key leaders called by President Obama, sending Vice-Foreign Minister He Yafei in his stead. This meant that Mr Obama, a president, had to call on Mr Wen, a premier.
The Financial Times ran a front-page photo capturing the moment: a US president leaning forward with arms outstretched, apparently pleading with a Chinese premier, who remained seated with hands folded and fingers interlaced, looking stone-faced.
Xinhua, China's leading newspaper, knew the picture did not show China in a good light; it ran a photograph of Premier Wen looking less imperious.
What has changed in US-China relations? The US economy has tanked, with China holding more than US$2.4 trillion in US Treasuries and other assets, which means the US needs China's cooperation in order to stabilise its economy.
The increase in tensions between the two nations caused an American leader close to the White House to ask me why China's posture has changed. I could not explain why.
So when I met the Chinese state councillor in January, I showed him the Financial Times photo. The state councillor responded that it was a misunderstanding.
I then added that foreign officials, including Singapore's, in negotiating with Chinese officials on joint statements have found them to be pushier and tougher to deal with.
The state councillor responded: 'When we are not strong we should not be proud, and when we are strong we will still not be proud.'
I agreed and complimented him on his speech in Jakarta in which he had pointed out that China's per capita GDP was modest, ranking 104th in the world.
Tit for tat
MEANWHILE, various commercial disputes have arisen between China and the US, making people wonder if these developments will lead to more protectionism and affect the global economy.
The issues include anti-dumping duties on US chicken products; levies on Chinese-made tyres and oil well pipes; allegations by the US that China has raised the international prices of several raw materials through export restrictions while keeping input costs lower for manufacturers in China; and China's censorship of Google and whether that constitutes an unfair barrier to trade.
In its quest to become a world power China has chosen to take the path of the 'peaceful rise'. It projects the image of a cuddly Chinese panda, compared with the fierce American grizzly bear.
Chinese leaders are in the midst of finding the right balance between keeping a low profile and exerting their growing influence. As a result, astute observers find China fumbling from time to time in its reach for the right balance in its public positions.
Deng Xiaoping summed up the US-China relationship in an epigram in the 1980s: There are inherent limits to better relations and inherent limits to bad relations.
With its rapid economic growth and the concurrent shift in the balance of power, China has become more strident in its protests against US arms sales to Taiwan and the President's meeting with the Dalai Lama. But Americans expect this and are taking these barbs in stride.
They know that the fundamentals of the two countries' joint strategic interests will prevent the complete severing of cooperation. China needs the US export market, investments and technology; America needs the low-cost daily necessities made in China to fill its Wal-Mart stores.
The world's monetary and political problems require both countries to take parallel policy paths. Cooperation and competition will continue, and relations will move forward, regardless of periodic conflicts.
This article first appeared in Forbes Magazine. Minister Mentor Lee Kuan Yew rotates in writing this column with David Malpass, President of Encima Global LLC; Amity Shlaes, Senior Fellow in Economic History at the Council on Foreign Relations; and British historian Paul Johnson.